Replies to post #22034 on Cycle Trading

[Duma]

You are asking me a question I can not answer for you, but you will see in a minute how timely your question is. Let me give you a bit of my experience. I have been investing for a long time and have tried about every way there is, all of which but one has been a failure.

I started off just investing in a Vanguard S&P500 mutual fund, but then I fell for a firm that did managed accounts, that is they selected stocks. They said they could kill the S&P. They did not even come close. I axed them.

After a couple of other failed plans, I went with a money manager who sold me on a very conservative plan of investing in different indexes to get a balance and avoid large drawdowns. That was over 10years ago and I am still using him. When compared to the S&P, he has done terrible. 2018 was a bad yr with the S&P down -4.9%. He managed a -13.6%. So much for conservative.

He did better in 2019, but 2020 was a disaster. Market was up 16.7%, he did 6.4%. We have been reluctant to do something different for fear of doing something real stupid. Well we are over that, I have my 4Q meeting with him Thur and he will hear the words, "You're fired".

I will tell you my plan, but first one more story that goes to your thinking. When I retired I had a good friend who went into money management. His plan was to invest in the 4 or 5 best S&P sectors. I don't know for sure, but I suspect that he has done okay. I tried my version of that in 2019, but I ended up not liking it. In my heart I still think is a good idea. So it could be good for you if you feel you know which sectors are the ones to choose before that break out. I do not have that confidence in myself.

So I said only one thing has been successful for me for my long term investing and that has been just buying the S&P and holding. The S&P is one of the best solid money makers out there. I posted the numbers to you last week. S&P 13.4% avg for 10 years, NASDAQ 20.4%. Those are good numbers. Go 100% Q's and you can get 20%+. Avoid small caps and REITs that have anything to do with malls or commercial real estate.

So what is my plan after my Fri meeting. My money is already in a Schwab account, so I will have my advisor removed as an advisor. I will sell all the low to none preforming funds he has me in and put it all in the S&P. I will move maybe about 25% or even higher into the Q's, whenever we have a big reset.

I am a firm believer of not trading much with long term accounts. I have also posted my weekly long term chart that will only trigger with a major pb. At somewhere around -20-30% I think it makes sense to start buying puts or selling. I think Jaws is correct and we will see as much as a 75% drawdown. It will be a killer. Flash pb like Feb 2020 don't bother me much.

So look over all the funds available and pay attention to the 5 and 10 yr average returns. So I can't tell you what is right for you, but maybe this will help with your decision. Good luck.

[Duma]

I have one more story that may be of major interest. The accounts I talked about in my last post are mine and my wife's IRA accounts. When I pulled out of Vanguard several years ago, I moved the money into what I call my #3 Van account at Interactive Brokers. I have done well with the account matching or being just under the S&P. It is a pretty large account, so I don't want to trade it too much just the same way I will treat my IRA accounts.

I trade it with 115% leverage to make up for the whips when I sell a bit when I get nervous. So far it has been better to not sell at all. But we don't know when the big pb is coming, so trying to be a bit proactive.

I have a plan for 2021 that I will replace 20% of the account with QQQ. This should help a bit. I also plan to try a covered call strategy very small to start.

This idea came from a good friend that moved to Phoenix this winter. He trades I think a pretty large account and is very aggressive with covered calls. He has bought 100 shares of many of the big names like ROKU, NFXL, APPL, MSFT, etc. Every 2 months he sells a 2month out call that will give he a 60% return. He did not give me the details of how he calculates the 60%, but I will show you how I do it.

So I also have a list of solid companies that I also watch. FDX, NVDA, PAYC, PYPL, and SQ.

I have picked one as a starter and see how it goes. SQ.

Here is my worksheet I made up last week. SQ is currently trading at 221. A 57 day option at 240 will get me 13.50. That is 6% downside protection. If the stock doesn't move I return 39% annually and if the stock were to go to the strike each month it would return 68%. I think this is his 60% number.

I will buy when I get a solid 60min buy signal. I got a M3 buy Fri, but I want to wait until I see M65 go flat and maybe a M5 xo. The daily is showing a bit of a pb, but it doesn't look serious yet, so I will try the 60min buy and exit if it turns around. I am not ready to just buy and hold that many shares. I would rather trade from a daily chart, but I want to get my feet wet.

My friend has done this for enough cycles (2 mo each) that he has built up a big cushion, so he just holds all the time and just keeps selling calls. If the stock blows through his strike, he buys back the call so he keeps the stock, and sells another call. Nothing is really lost and he in on his way to his 60% number.

As far is holding 100% of the time, I think there could be a time to sell. I will hold that for another discussion.

Something to think about. I think it has real possibility.

[farooq]

You could move your vested fund in to self directed IRA and choices will be do what ever you wants to do. In case you like more control.

[Duma]

SC has some great tools to quick look at the S&P sectors and to even drill down into sub-sectors. If I was going to trade the sectors I would be looking to lighten up on sectors peaked and add more to sectors that are coming off the bottom.

Here is a quick chart from SC that could be used to go to your charts for a finer look at the price action.

I see that XLP looks like it might have some potential. My problem that I had with my sector investing is that many of the sectors really don't move all that much. I am looking for much bigger results.

Do a comparison of the sectors to the S&P 500 and you will what I mean.

Below the chart is a 1 yr return for the sectors. Take a look you will see what I mean.